by Al MartinThe Trouble with Retirees & Pensioners
(4-29-16) Back in the olden days, retirees who were part of the Great Unwashed could always invest in what they typically invested in -- shorter-term bank Certificates of Deposit (CD’s) and Treasury bills. According to Simon Black of “Sovereign Man” – “Today, the latest government report shows the US inflation rate at 0.9%; yet that same 1-year US government bond yields just 0.53%. In other words, today you lose more money to inflation than you earn in interest.”
Now the yields are a net negative relative to inflation and that’s due to the actions of the central banks. People who talk about this blame the central banks, but they fail to mention that what the central banks have done was necessary to generate as much economic output (Gross Domestic Product or GDP) as possible.
The reality is that central banks are doing their jobs – to reduce the cost of money in order to reduce the cost of economic product. The mandate of the central banks is very simple – to control the cost of money and to maintain liquidity.
It should be remembered that central banks made international trade possible. The United States is the best example. Prior to 1913 the United States economy had always been unstable and the value of the US Dollar had always been unstable because the United States had yet to form a central bank. From my perspective it doesn’t really matter who owns the central banks.
The reason I’m able to trade every day and make money when most people can’t is because I do understand economics and markets. It is true that a small group with enough resources can temporarily influence markets. And that’s how money is made -- by the temporary influencing of markets.
Certainly the largest investment banks who are the largest players influence the markets. If you look at what the New York Stock Exchange prints out every day which is called “odd lot volume,” which means transactions of 100 shares or less.
Then you see that every day between 80-85% of the volume traded on the New York Stock Exchange is “odd lot buying,” meaning individual investors or traders who are mostly invested in a mutual fund or hedge fund. These are also the Great Unwashed and all they care about is if they get a 5-6% annual return.
It is true that a Global Cabal exists and that virtually all of the planet’s wealth and hence political power is concentrated in 5% of the “hands” as it were on the planet and that exists to maintain a longer term consolidation of power which is actually necessary in order to keep the whole planet together. It has to work this way. Otherwise the planet would simply fall apart.
Looking at it in a larger context, the artificial post-war construct of keeping monetary fiscal stimulus on steroids in order to have an abnormally high rate of economic growth was unsustainable, as we have said before. So what we are now seeing is the unwinding of this economically unsustainable model.
It should be remembered that the Gloom-and-Doomers have been consistently wrong. That’s why you don’t see some of them that have been on CNBC anymore.
The reason the Gloom-and-Doomers have been wrong is that they underestimate the power that the central banks have to keep a dead horse on life support. To maintain what was an unsustainable fiscal construct in the post-war era was meant to gradually increase the power of the central banks.
Now the baby boomers in their 60s and 70s are not retiring as they had planned -- but that has always existed. The reason you’re seeing more of that is because of what happened in the 2008-2009 time frame. Also there was the meltdown of 2001 and 2002 and then you saw an increase of older greeters at Walmart. The pensioners suddenly had less income than they thought they were going to have.
In fact the number of Walmart greeters, I think should be an economic statistic. That tells you a lot. Markets fell apart in 2001-02. Markets fell apart in 2008-09. And now you see an increase of oldsters at Walmarts.
So what does the future hold for the old folks at home? They are not losing their pensions or whatever they had invested. The pensions aren’t being cut. What’s being reduced is the income from interest on savings they once had. That’s the part that’s being reduced.
It impacts everyone in that age group by a combination of belt-tightening by the over 65 set and more of the over 65 set going back to work.
Also it should be known that low (net negative) interest rates are here to stay. People think that in 2016 or 2017 rates will begin to rise but they will be here for much longer.
The pensions themselves aren’t changing. What’s changing is the returns they used to receive. What has become increasingly important, however, in a negative rate environment is the return they’re getting on their savings – which is declining.
Their savings are CDs and mutual bond funds which they still have since it’s the only thing they know and that’s the only thing you still can buy.
Even though it’s difficult to imagine, that’s what they’re doing, but instead of buying one-year CDs, they’re buying four-year CDs. I get asked about that all the time because all the old gals own CDs. I tell them all the same thing.
Buy 30-year US Treasury bonds which are currently yielding about 3-1/2%. They’re partially tax-free and you can sell them anytime you want – but none of them will do it because they don’t know what they are and don’t really understand them. On the other hand, CDs are something the oldsters understand.
After all a 3% yield on a 30-year bond actually looks good in a negative interest rate environment.
Stay tuned…

* AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," (http://www.almartinraw.com) provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin Raw.com, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" (http://www.insiderintelligence.com) will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.